Use This ETF For Canadian Bank Exposure

Published December 04, 2012

Benzinga

Canadian banks, long viewed as a steadier, more conservative than their U.S. rivals, have started reporting results for fiscal 2012, which ended on October 31. At least one research firms sees opportunities among the group for investors.

In a recent research note, S&P Capital IQ looked at five Canadian banks, including Royal Bank of Canada (RY), which reported results last week. The research firm has a three-star rating on Royal Bank of Canada and a four-star rating on Bank of Montreal (BMO), which reported results this morning.

S&P Capital IQ also has four-star ratings on Bank of Nova Scotia (BNS) and Toronto Dominion (TD), both of which report later this week. The firm has a three-star rating on Canadian Imperial Bank of Commerce (CM).

"We expect total revenues for these five to have increased 8.4% for the year in the aggregate, just above the 8.2% growth recorded in 2011 and the 7.1% rise in 2010," S&P said in the note. "These actual and expected results reflect the gradual cooling down of the Canadian economy. Following 2.8% growth in the period 2008 to 2011, Canadian real GDP growth is expected to slow to 2.2% in 2013 and 2.3% in 2014."

Investors looking for exposure to multiple Canadian banks through one ETF can consider the PowerShares KBW International Financial Portfolio (KBWX), which S&P rates Overweight. The ETF is true to its name in that it is home to banks from a variety of countries, including Japan, the U.K., Brazil, Spain, Chile, Germany and India. Canada is the fund's largest country at 17.64 percent, more than double Japan's weight of 8.66 percent.

Toronto Dominion, Bank of Nova Scotia and Royal Bank of Canada are all found among KBWX's top-10 holdings. Bank of Montreal and Canadian Imperial are featured further down KBWX's roster.

An alternative to KBWX for investors to consider is the Market Vectors Bank and Brokerage ETF (RKH), which S&P Capital IQ also rates Overweight. That ETF features Royal Bank of Canada, Toronto Dominion and Bank of Nova Scotia among its top-10 holdings with the trio combining for nearly 15 percent of the ETF's weight. Bank of Montreal is also found in RKH's lineup.

The Market Vectors offering is smaller with 26 stocks compared to 56 for KBWX, but RKH is slightly less expensive with annual fees of 0.35 percent compared to 0.4 percent for KBWX. KBWX is up 16.5 percent year-to-date while RKH has surged 22.2 percent.